Monday, February 15, 2016

A Few Basics of Public School Finance in Nebraska

There's been a lot of discussion among staff and students about what caused our current budget shortfall.  I wanted to better understand how this happens, and a quick Google search led me to the following resources which I found informative:

http://www.openskypolicy.org/opensky-releases-k-12-funding-report (download the report they provide.)

http://www.nasbonline.org/ConferenceHandouts/2012/A6.pdf (This is a presentation from a few years back about how school finance works, specifically for Lincoln Public Schools, but the same concepts apply to every school.)

I want to point out that I have not familiarized myself with the actual, overall budget numbers for Cozad Community Schools, and that I am not referring to our district's specific budget.  Nor am I speaking for any administrator or the board of education itself.  I'm merely trying to share my understanding of how these major adjustments in state aid work.

Every public school in Nebraska has two main sources of revenue:  local property tax and state equalization aid.  Add a smaller amount of federal funds and all the other miscellaneous receipts the school collects, and you have the total income for a given year.  To keep things simple, I am ignoring the federal funds and miscellaneous receipts.

Local property tax income is pretty straight-forward, and most of us understand how that works.  School income from this source is based on the land valuation in the district and the rate at which the district taxes.

State aid is more complicated, but it is meant to "equalize" the resources available for districts to spend on services for their students.  This is necessary because some districts have more land value and/or lower need than others.  The basic idea is that state aid allows relatively poor districts to provide the same level of funding for student services as districts which have greater local resources available.

At a basic level, equalization aid is calculated by subtracting the amount of local funding resources from the calculated "needs" to run the school.  Equalization aid makes up the difference.  A district with relatively high land values and relatively low need does not receive much state aid.  A relatively poor district with a larger number of students has greater needs, and receives more state aid.

Of course, land valuations can change, and in fact the valuations in our district went up significantly two years ago.  According to the formula, when local resources increase, state aid decreases.  This seems pretty straight-forward, but in reality there are other complicating factors and it is not so easy to predict by local boards and superintendents.

The important thing to note is that the state does all the calculating and then they inform the districts in January what their upcoming state aid will be.  This has to be a fixed number so that districts can set their budgets and tax rates for the upcoming year.  However, the numbers used in the calculations come from the actual values from the previous year (the real numbers are only known for sure once the year is over).

The problem is that when valuations change, it takes a year for the formula to catch up.  This means that if valuations increase, state aid is likely to be higher than it should be in the next year.  The real problem comes in the following year, because in this case, the state aid payment is not only lower, it is also reduced by the amount of the over-payment in the year before.  This of course can lead to rather extreme changes in state aid from one year to the next.

Again, I want to point out that this post is not based on any actual numbers for our district and that school finance is really much more complicated than I've represented here.  I'm just trying share what I've learned at a basic level about how public education funding works in Nebraska and how that relates to the complicated business of school funding and budgets.


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